April marks a slight rise in the number of resale flats sold, 4.4 per cent up from March. This could be a sign buyers are coming back to the market after having observed the market for almost 3 quarters now and having held out in wait of market stability. As the frequency of BTO flats launches slow down, buyers who are still in search of a flat which suits their needs, may it be price, location or size, could be more willing to purchase on the resale market now.

How will the HDB market perform in the upcoming months? Analysts and experts are expecting prices to fall very slightly before stablising in the third quarter of this year. Overall, prices for most HDB flats fell, with the exception of executive flats of course. A 1.2 per cent rise was recorded for that sector.

With rents also coming down, mainly due to the decreasing demand as the foreign workforce diminishes, buyers of HDB flats are also more likely to think of their purchase as a long-term home occupation investment rather than to count on profiting from rentals.

The second half of 2014 and the first quarter of 2015 would be an interesting time for the HDB resale flat market, a time to find their footing and possibly find ways to turn itself around.

Recent changes in the valuation process for resale HDB flats have drawn some feedback from the public. Many are wary of how this mix-up will cause some hiccups in the buy-sell procedure and how it may also affect the selling prices.

Photo by HDB. How does the recent change in the HDB resale process affect the seller and buyer?

Sellers will no longer be the ones to apply for valuation of their flats. They now need to come to an agreement on a selling price with the buyer before the buyer applies for the valuation. This may favour the buyer more than the seller as COV prices have been the main bugbear in the search and purchase of a suitable resale HDB unit, but without prior knowledge of the price of a unit based on the age, location and size of the unit, buyers may also be very much left to glean information from rumours in the wind or self-research.

HDB has however tried to bring some equilibrium to this confusion by publishing resale transaction figures daily instead of fortnightly.

And buyers too. More for buyers perhaps, as new rules regarding the cash-over-valuation (COV) for HDB resale flats kicked in at 5pm yesterday:

Sellers will no longer be the ones getting a valuation of their flats from HDB. Buyers instead are responsible for that part of the procedure.

HDB flat valuations can only be secured after the seller and buyer have agreed on a price. Previously, the seller could obtain a flat valuation prior to seller and then offer the valued price to the buyer, and on top of that demand a COV price.

The government is keen to make the HDB resale market less dependent on COV prices. Recent HDB sales have seen the COV prices drop to almost zero in many cases and some even selling below valuation. Just last year, median COV prices have sky-rocketed to $38,000 with some even garnering six-figures.

HDB will also now be publishing HDB transaction figures on a daily basis instead of fortnightly. These recent moves may be the push towards transparency the public housing market needs.

It was not too long ago that Cash-over-valuation (COV) prices for resale HDB flats dominated the headlines. The rarer and more highly-in-demand the unit, the higher it went. HDB flats were being sold at close to the million dollar mark, with a few pulling ahead and making it across.

But the weakening property market has meant a dip in demand in resale flats and sellers now find themselves lowering their asking COV prices, or even selling prices, especially if there is some urgency involved in selling their HDB flat. From the median of $11, 444 in October, COV prices are now at $8, 000 in November. There were expectations that it will regain its foothold at $10, 000 by year-end. But the future seems a little foggy at the moment.

Photo source: ThinkStock

What are the factors causing this decline? And will these reasons resolve themselves in the new year?

Housing curbs. Stricter loan limits means buyers now have lesser to spend and affordability of their property purchases will now take priority in their decision-making process.

Less demand for resale units overall. As new private properties launch at an increasingly rapid pace, with smaller units available at lower prices, the popularity of public housing may continue to wan.

Less demand for resale units in popular estates. As more BTO flats are rolled out, with some in mature estates, buyers may be drawn to apply for these instead of buying a unit off the resale market, especially if they are not in a hurry and location is not as crucial a deciding factor.

Increasing number of HDB upgraders. As suburban condominiums become a more viable and popular option, there may be more HDB upgraders looking to sell their flats in order to purchase private, but this would also mean a growing pool of sellers looking to let go of their flat and hence diluting the intensity of the market.

Considering the fact that July 2009 was the last time COV prices fell below $10,000, the recent $8,000 mark could be one of the lowest in the last five years. In fact, some sellers are now offering their units for sale without any cash premium, and even at prices below valuation. But these cases could be few and far in between as resale units in popular HDB estates are still rare and may fetch reasonable prices.

In fact, some sellers are even letting their HDB flats go at below valuation. Once a highly-debatable amount, these cash-over-valuation (COV) prices are now almost all gone, or miniscule at the least. Although these amounts are set by the seller, above the HDB valued selling price, it is usually a good indication of how popular a unit is, and whether the seller was looking to earn some bucks from the sale. But recent mortgage rules have affected the demand for resale HDB flats and according to HDB, in October alone 105 units were sold at less than their HDB appraised price. This is a significant number, especially as its a good 6.7 per cent more than the earlier half of the year. .

The mid-year announcements by MAS of stricter mortgage terms such as the introduction of the TDSR (total debt servicing ratio) and shorter loan periods have left many buyers reconsidering their property purchase more carefully. In addition, Singapore permanent residents now have a 3-year wait before being able to purchase a resale HDB flat. In January, the median COV stood at $35, 000. In October, it has fallen to $12, 000. Many sellers who have held on to their COV asking prices, have had a long wait, and some have given up and reduced their COV prices.

Areas where a larger amount of new HDB flats are being launched, such as Punggol, Sengkang and Chao Chu Kang, are harder hit as the buyers of resale flats in these areas will be diverted. BTO (build-to-order) flats are considerably cheaper than their resale companion. As singles and young couples are now hampered by a lower loan percentages, 30 per cent of their gross monthly income, many are no longer able to afford high COVs, even if they truly liked the unit. And as the building of new HDB flats are happening in quicker cycles, many BTO flats which are now eligible to be placed on the resale market after their 5-year MOP (minimum occupation period) tenure, will have to compete with more new flats nearby. As some families are keen to move to be near their children’s schools or because of family situations, there may be more resale flats going at or below valuation. How does this impact the HDB flat market in 2014?

For HDB flat sellers, maybe not such good news. HDB flat transactions have dropped to a 16-year low. The introduction of a new scheme where singles are now able to purchase new 2-room flats in non-mature estates directly from HDB, could also have been a contributing factor to the dip. But perhaps smaller flats are still finding interest. The bigger, well-located flats may be more difficult on the pockets of potential buyers, especially with the recent loan curbs. Money is now not as easy to come by, and that could have posed restrictive on buying ability. COVs for these larger units have fallen to around $18, 000. The average in January this year was $35, 000.

What does this show and is it a sign of positive times to come? What will become of the resale HDB flat market in 2014 and will this dip continue as more new BTO flats continue to be launched?

Not too long ago, COV (cash-over-valuation) prices of resale HDB flats were the talk of the town. Red hot and almost scorching. Burning holes in the pockets of buyers.

But now, median COV prices have dropped $2,000 from the previous average of $20, 000 in July. In January this year, it was at a thundering $35,000. And since April, resale HDB flat prices have also fallen 4 months in a row. It is speculated that most of the drop is due to January’s loan curbs which restricted the percentage of monthly income which could be used to pay off home mortgages.

In addition, starting from July, singles were able to apply for new BTO flats directly from HDB and from the overwhelming response to the initial launch, many may have withdrawn from the resale HDB flat market. The lowest COV prices were for bigger HDB flats in the outside-of-central HDB estates. An executive condominium (EC) which was put for sale in the resale market in Punggol only had a $13,000 COV premium. At the other end of the spectrum, popular mature estates such as Bishan and Queenstown continue to command high COV prices. One of the highest recorded COV prices for a bishan flat was at $120, 000.

As the number of resale HDB flats being sold dip, the market is kept on its toes about whether COV prices will continue to drop as the supply of new flats and private properties continue to enter the market or will the potential resurgence of home prices once again cause a peak in COV prices as resale HDB flats seem the more advisable option?

In January 2011, COV prices were at an average of $20,000. By July 2011, they were hitting the highs at $38, 000. With some ups and downs along the way, January 2013 still showed an average of $35,000. But by last month, COV prices have dropped to the $20,000 in January 2011. An all time low in the past 2 and a half years, according to Singapore Real Estate Exchange (SRX) data.

A sign of relief for those hoping to buy resale HDB flats in the near future? Perhaps. In July alone, there were 44 cases where HDB flats were sold entirely without any COV (cash-over-valuation). This is more than 3 times the 14 flats sold without COV in January this year. Prices of resale flats have also dropped by 0.5 per cent, the third month a dip has been registered.

The most recent property cooling measures where loan restrictions were put in place, may have been the main reason for market changes. As buyers may not be able to borrow as large amounts as before, the ability to pay high COV prices may have been removed thus lowering demand for flats with high COVs. Sellers may have realised this and consequently reduced their asking COV.

Angsana Breeze in Yishun. Part of July 2013′s HDB BTO flats launch.

There are 2 sides to the coin, however. Some industry players are expecting the lowering COV prices to eventually bring down resale prices as well. But some are expecting more buyers to shift their focus back to the resale HDB flat market and thus perhaps driving up demand and asking prices in the end. The latter situation may be dependent on whether buyers are in a hurry to purchase a home as compared to waiting it out for a BTO flat to be secured, then built, considering the much lower price of a new flat. Or will private property buyers eventually come back to the HDB market when things get too heated in the private home market? But will that in turn be dependent on the demand and thus pricing of private properties, which some are expecting to fall into a lull as the market becomes saturated?

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